Question Details

The firm- target capital structure is consistent with which of the following 



 .	From the information below, select the optimal capital structure for Minnow Entertainment Company.

a.	Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.
b.	Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.
c.	Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.
d.	Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.
e.	Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.

 .	Which of the following statements best describes the optimal capital structure?

a.	The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company- earnings per share (EPS).
b.	The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company- stock price.
c.	The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company- weighted average cost of capital (WACC).
d.	Statements a and b are correct.
e.	Statements b and c are correct.
 .	The firm- target capital structure is consistent with which of the following ?

a.	Maximum earnings per share (EPS).
b.	Minimum cost of debt (kd).
c.	Minimum risk.
d.	Minimum cost of equity (ks).
e.	Minimum weighted average cost of capital (WACC).

 .	Which of the following is likely to encourage a company to use more debt in its capital structure?

a.	An increase in the corporate tax rate.
b.	An increase in the personal tax rate.
c.	A decrease in the company- degree of operating leverage.
d.	Statements a and c are correct.
e.	All of the statements above are correct.

 .	Which of the following statements is most correct?

a.	A reduction in the corporate tax rate is likely to increase the debt ratio of the average corporation.
b.	An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
c.	If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
d.	All of the statements above are correct.
e.	None of the statements above is correct.




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